Gold's brightening luster raises prospect of $3,000-an-ounce price

The precious metal is the 'ultimate store of value'

Sprott Asset Management USA Inc. executive vice president Ed Coyne says gold has gained a lot of value in the market due to lower interest rates and debt on the balance sheet.

Unprecedented central bank and government actions taken to stem the economic devastation of the COVID-19 pandemic will send gold soaring to $3,000 an ounce, according to Bank of America.

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Governments around the world have issued “stay-at-home” orders to slow the spread of the virus, bringing major economies to a near standstill, and causing their gross domestic products to see the steepest declines of the modern era.

The economic malaise has forced central banks to slash interest rates and massively increase the size of their balance sheets to support their economies. At the same time, governments have run gigantic deficits in order to provide relief to taxpayers.

The extraordinary measures enacted by central banks and governments have already boosted gold by 14 percent to $1,729 an ounce this year, but Bank of America says the precious metal is poised to rally another 74 percent over the next 18 months as investors seek safety in the “ultimate store of value.”

Widmer noted the size of major central bank balance sheets has held at around 25 percent of GDP for much of the past decade. Since March 11, however, the Fed’s balance sheet has grown by 48 percent to $6.08 trillion and is now 28 percent of GDP. That number is expected to continue to surge as the central bank has pledged to buy unlimited assets to support the economy.

Additionally, Congress has passed three phases of aid, putting trillions of dollars into the hands of the individuals and businesses that need it most.

That has fueled unprecedented investor enthusiasm for the precious metal, with exchange-traded funds now having seen inflows for a record 22 straight days, according to George Gero, managing director at RBC Global Wealth Management.

“Gold prices are an economic and political barometer of our wellbeing, and investors are doing what central banks do, buy gold to shore up currencies,” Gero wrote Wednesday. A price of $1,800 an ounce is “not too far ahead,” he added.